DVO valuation of property occupied by tenants with court cases going on set aside by ITAT

DVO valuation of property occupied by tenants with court cases going under Rent Control Act set aside by the ITAT as the objections were dealt with by the DVO

ABCAUS Case Law CitationABCAUS 2366 (2018) 06 ITAT

The instant appeal was preferred by the assessee against the order of the Commissioner of Income Tax (Appeals) (CIT-A), sustaining the addition made byt he Assessing Officer (AO) u/s 50C of the Income Tax Act, 1961 (the Act).

The income of the assessee included Long Term Capital Gain (LTCG) on his share in property sold. The said property was very old and also was occupied by tenants with whom litigation were going under the Rent Control Act.

As per the sale deed, the fair market value (FMV) of the properties sold was not more than the sale consideration received. With respect to FMV, the assessee had obtained a report of the approved valuer (AVO). The FMV calculated by AVO was substantially lower than the valuation of Stamp Valuation Authority particularly in view of the deductions made on account of tenancy problem and other factors.

However, the Assessing Officer (AO) observing the difference in the stamp duty and as per sale deed, initiated re-assessment proceedings under section 147/148 of the Act. The assessee furnished various evidences in support of the FMV and contended that stamp duty value was not correct.

The AO referred the matter to the departmental valuation cell for determining the fair market value as on the date of sale. In compliance to the notice of Valuation Cell, the assessee submitted objections. It was contended that fair market value of the property was not more that the value reflected in the sale deed. However the DVO estimated the FMV of the property higher than the sale deed value shown by the assessee. The re-assessment was completed accordingly by adding the difference to income.

The CIT-A held that the Approved Valuer had made a favorable report as per the convenience of the assessee and the same was duly considered by the DVO. CIT-A dismissed the appeal of the assessee holding that there was no justification in adopting the valuation as worked out by the approved valuer over the report of the DVO.

The Tribunal observed that the property in question was not a free hold property, it was occupied by tenants and there were court cases going on to get the premises vacated. The objection of the assessee was that the Development Authority had issued letters to the assessee to takeover certain portion of their property in connection with road widening.

The Tribunal observed that CIT-A while deciding the case had observed that property was vacant possession and that vacant possession was given to the buyer and there was no question of any encumbrance. However, in the sale deed itself it was mentioned that the property was occupied with tenants and moreover court cases were going on against them as per Rent Control Act, which was itself evident in the order of the CIT(A).

The ITAT further observed that the CIT(A) had held that the valuation by DVO was correct whereas the FMV adopted by the authorized valuer was arbitrary. However, there was no evidence or any material on record, which highlight these facts. The order of the CIT(A) was not a speaking one and written submissions of the assessee making objections were not at all dealt with.

The Tribunal also observed that the DVO’s report had also not dealt with the issue of benefit to be given to the assessee as the Development Authority took away some portion of the property for road widening. The DVO had also not pointed out that property was already occupied by tenants and court cases were going on and what could be the impact of valuation of such property.

It was noted that relevant issues had not been clearly dealt with by the DVO and he simply applied circle rate available and made the report. The ITAT opined that the Income Tax legislation being a welfare legislation is meant to protect a bona-fide assessee and in the instant case, the subordinate authorities had not categorically dealt with the submissions of the assessee nor had brought out any material on record to support as to why DVO’s report should be taken into consideration.

Accordingly, the ITAT set aside the order of the CIT(A) and directed deletion of addition by allowing the appeal of the assessee.